W is Grantor of Irrevocable Trust with H as beneficiary. So Trust income reported on their joint tax return. Trust set up a Single Member LLC (SMLLC) with the trust as the only member. So the SMLLC is a disregarded entity and any income still reported on the joint tax return - so far so good. The LLC is making a home-equity loan to the H&W. So mortgage interest will be paid by H&W to trust. I am pretty sure that since the SMLLC and the H&W are the same tax entity - there is neither mortgage interest income (to SMLLC) or a mortgage interest deduction (to the H&W) - since they are paying this to themselves. So far so good.\n\nBut what is the "correct" interest rate? I know there is something called the Applicable Federal Rate interest rate. Is that applicable here? Also I believe this AFR is a minimum rate? Can the actual rate charged by the LLC be higher? Again - no matter the rate I don't believe it would result in interest income or interest expense.